Clapp v. Gilt Edge Consolidated Mines Co.

144 N.W. 721, 33 S.D. 123, 1913 S.D. LEXIS 281

Opinion

McCO-Y, J.

It appears from the record that on and prior to the 6th 'day of April, 1910, a corporation, known as the Gilt Edge Maid Gold Mining Company, was indebted in the sum of $36,496 on account of various miner’s liens which had been reduced to judgment in one joint action; that -a foreclosure sale of the mining properties of said corporation -had- -been made thereunder on the 6th day of April, 1909, and -that the time for redemption from such foreclosure sa-le would expire on the 6th -day of April, 1910; that said corporation at said -time was also indebted0 in the sum of $44,000 represented by certain bonds owned by various parties, and which bonds were secured by mortgage upon all the mining properties of said corporation running- to and in the name of the Minnesota Loan & Trust Company, trustee; that said corporation was also indebted to respondents-, the plaintiffs- in the action, in the sum of $18,845, and which indebtedness had been reduced to judgment; that it was necessary for the Minnesota Loan and Trust Company, trustee, and s-aid -plaintiffs-, in order to preserve their equities against said -Corporation, to make redemption from said miners’ lien foreclosure sale; that -o-n or about the 5>th day of April, 1910, the said Minnesota Loan & T-russt -Company, by some arrangement with defendants-, made -redemption from such foreclosure sale with funds furnished by defendants; that, after the -expiration- oif the said time for redemption, the defendants Ford, Beaman, and Hippachs formed and organized defendant -corporation, another -corporation known- as the Gilt Edge Consolidated Mines Company, with a capitalization of 3,000,000 of shares of the par value of $1 each. So far there -seems to he no material dispute in relation to the facts. If i-s -claimed by plaintiffs that they were -ready, able, and willing to redeem from -said foreclosure sale and had eve-rv intention of so- doing; that a short time prior to the expiration of the said -time for redemption, -the plaintiffs and defendants entered into- -a contract, through certain written -correspondence with defendant Ford, representing the other defendants, whereby defendants Ford, Beaman, and Hippachs promised and agreed to give and allot to -plaintiffs- 180,000 corn-men shares -of capital st-ock in the G-il-t Edge Consolidated Mines Company, said Corporation -to- -be' -thereafter organized and promoted by said defendants, for -said- judgment owned by plaintiffs, on condition that plaintiffs would refrain from redeeming from said foreclosure sale; that plaintiffs, after -entering into said contract, and- by reason -and in execution -thereof, were induced to- and di 1 refrain from -making such! redemption-; that thereafter the said defendants procured the s-aid Minnesota Lo-an & Trust Company to make said redemption, -and thereafter organized and promoted said Gilt Edge Consolidated Mines Company -corporation-; that said Beam-an became the president and- said Ford the secretary thereof; that notwithstanding the formation of said corporation and the said promises and agreements, the -said Gilt, Edge Consolidated Mines Company lias succeeded to the interests of said other defendants, and said defendants and all of them' have refused and still refuse and neglect to deliver to plaintiffs the said 180,000 shares of siaid stock to the possession of which they are entitled; that said new corporation had full knowledge of said contract with plaintiffs and accepted all the benefits thereof, and ratified the same, and became bound to carry out the terms thereof; that by reason of such refusal plaintiffs have been damaged in the highest market value of said stock between 'the 13th day of April, 1910, and the date of trial. The defendants, while admitting that the defendant Eord made certain propositions in writing in letters to- plaintiffs, contend that no contract for the delivery of said stock was ever consummated between plaintiffs and- defendant Eord; that the alleged contract was made upon a condition which was never complied with; that, if any contract was made, it was rescinded; that, ■even if -there was an unrescinded- contract a© -between the plaintiffs and the defendant Ford, the -same was, as against the defendants Beaman, Hjippachs-, and the Gilt Edge Consolidated Mines ■Company, unauthorized and invalid under the statute of frauds; that the original contract did not as to said .defendants become valid by ratification; that conversion does not lie upon a mere contract for the sale and delivery of stock not yet in existence, thereby involving the -highest -market value -as 'the measure of damages, but'that the remedy in such a case is -an action -for breach of contract. O-n the trial the court directed a verdict in favor of plaintiffs against the defendant Ford upon all the is-sues excepting as to the amount of damage sustained. The court also directed a verdict in favor of the -defendants Beaman, Hippachs, and the Gilt Edge Consolidated Mines Company. Motion for new trial was made by Ford, and denied, -and- Ford -appeals. Motion was made for new trial by plaintiffs, ais- against the defendants- Beaman, Hippachs-, and the Gilt Edge Consolidated' Mines Company, which motion was granted, and these defendants- also appeal.

Some contention is made that this is- an action in conversion and- that conversion will not lie to recover the value of shares of stock that were never issued or never -cam-e into existence. We -are inclined to the view that this is an action for breach of contract and not -an action- in conversion. It is true that the complaint -demands damages for the highest market value between the time of the -demand and the verdict, which is a rule or measure of damage in conversion actions under section 2315, Civil Code. The rule or measure of damage for breach of contract is prescribed by section 2293, 'Civil Code. There was evidence offered and received under the highest market rule, and the court instructed the jury upon the highest market value rule.

[1] So far as appears from the record, this evidence was received without objection, and the instructions of the court in this, particular were not excepted to, and therefore became the láw of the case, whether right or wrong. The sufficiency of the evidence to sustain the verdict as to the amount of the damages awarded is not questioned upon this appeal.

It is contended by appellants that the contract alleged by respondents was never consummated; that said contract was made upon a condition that was never complied with. The negotiations preceding this alleged contract are contained in somewhat voluminous written correspondence and telegrams between the respondent Lowry and appellant Ford. This correspondence took place in February and March, 1910, and 'on its face purported to be carried on by Lowry on behalf of all the respondents and by Ford on behalf of -all the defendants, excepting the Gilt Edge Consolidated Mines Company, which at that time had not yet been organized. It will serve no useful purpose and would be impracticable to set out -such correspondence in full. The appellants, however, contend that the proposition made by defendant Ford to- respondents to induce respondents to refrain from making such redemption was only upon condition that the bondholders also agreed to a like proposition, while on the other hand the judgment holders, the respondents, contend that the two propositions (that is,' the proposition to 'the bondholders and the proposition to the judgment holders), as finally agreed upon, were wholly independent of each other. We are of the view that respondents are right in this contention. The first letter from Ford to Lowry, dated February 8th,. Which contained the initial proposition, did state that “if this -offer is accepted by them [meaning the bondholders], I am willing to make the same offer to yourselves [referring to respondents].”' This letter also contained the statement that the indebtedness belonging to- -the bondholders wo-u-ld be taken into the -new corporation and recognized at full face value, while the offer to respondents contained in the letter was to1 recognize- and take over their judgment at one-half, its fa-ce value. Thi-s 'proposition was wholly rejected by the respondents, and a new proposition immediately submitted back to- appellants, proposing that the said judgment indebtedness be recognized at. its full fac-e value the same as- made, to the bondholders, and which prop-ositioh made by respondents contained the statement that -this proposition depends entirely upon ourselves and not -upon -the bondholders. This proposition made back by the judgment holders was the -one finally -accepted and agreed to between Lowry and Ford, and which -became the contract. The proposition ma-de to the bondholders to- take their indebtedness at fact value was isubsequent-ly referred to in the correspondence as a -basis for and in connection with -the proposition to recognize the '■bondholder’s indebtedness at its face value. The final telegram to Ford, dated February 17th, was as -follows: “Conditioned upon immediate closing of -deal will -accede t-o yo-ur terms. Answer.” To which Lo-wry immediately replied: “Telegram- received. You may consider .deal closed so far as Clapp, Turner and- myself are concerned. Which telegram I now confirm, your agreement -being that you put the judgment -holders on the same -basis as you do- the bondholders, namely, taking in our judgment at face value and giving us -stock at the rate of fen cents- -a shar-e, or 180,000 shares, we have the privilege of either taking the preferred stock or common stock, as per your offer of February 8.”

[2] W-e -are of the opinion -that the validity of this contract with- respondents was in no manner dependent upon whether or not a like contract wa-s finally made between appellants and the bondholders. Some contract, acceptable and satisfactory to- appellants was- subsequently made with the bondholders but not on the same terms made with respondents.

[3] The respondents nex-t contend -that, if any contract was ever made with Ford, the same was subsequently rescinded. It appears that the contract with the judgment holders was closed- on February 17th. On March 18th Ford, -among other things, wrote Lowry as follows: ‘ ‘Thi-s is to advise you that my several propositions to the bondholders and judgment -creditors of the Gilt Edge Maid Gold Mining Company, under date February 7 and February 8, have not been accepted within the time or according to the terms therein specified, and that I consider myself under no obligation to either the bondholders or the judgment- creditors by virtue thereof.’’ It i'S the contention' of appellants that .this letter constituted a rescission of the contract previously made with- the judgment holders. Evidence was offered bv the judgment 'holders tending to show that prior to the negotiations resulting in said contract they had funds subscribed and forthcoming .with which to make said- redemption, and that when said contract was closed they released such subscribed funds, and that when the said letter of march 18th was received it was not then within their power to secure fund's with which to make such redemption. It also appears that Ford knew that respondents were procuring the funds with which to make redemption largely by subscription.- Under these circumstances we are of the opinion that a rescission was not made; that respondents were not restored to the position they were in at the time of entering into said contract. Under the circumstances of thi-s case the attempted rescission was not promptly made. Section 1285, Civil Code. Appellants further contend that, if there was an unrescinded: contract as between respondents and Ford, .the same was, as against- the defendants Beaman, Hippachs, and the company, unauthorized and invalid under the statute of frauds. The specific contention being that the alleged agreement was a contract for the sale of personal property for a price in excess of $50; and-, -where no part -of the purchase price was pa-id and no part of the subject of the sale delivered, the contract was void unless in writing, under Sec. 1309, -Civ. Code; and where -there is no written -authority shown authorizing Ford to enter into ssuoh contract for and on behalf of the other defendants, they cannot be bound 'by his action under the provision of section 1667, 'Civil Code, providing -that: “An authority to enter into a contract required by law to be in writing can only be -given 'by an- instrument in .writing.” It is the contention, however, of respondents that the agreement was not the sale of corporate stock but was in the nature of a subscription to take a -certain number of shares of stock in a corporation not then in existence -but afterward to be formed, and that .as to such a transaction the statute of frauds is not applicable.

[4, 5] We are of the opinion that the contention of appellants is not tenable; that the transaction constituted a subscription! in writing to take a certain number of shares in a corporation not then in existence but thereafter to be organized; .that there is no law requiring such a contract to be in writing, and that the same was not within the statute of frauds referred to; and that appellant Ford might have been authorized -by parol, by his co-defendants, to enter into such a contract. 29 Am. & Eng. Ency. of Law, p. 961; Thompson, Commentaries on Corporations, vol. 1, §1147; 10 Cyc. 391; 1 Cook on Corporation's, §52; Peninsula Co. v. Cody, 161 Mich. 604, 126 N. W. 1053; Gadsden v. Lance, McMul. Eq. (S. C.) 87, 37 Am. Dec. 548; Rogers v. Burr, 105 Ga. 432, 31 S. E. 438, 70 Am. St. Rep. 50; Webb v. Railway Co., 77 Md. 92 26 Atl. 113, 39 Am. St. Rep. 396.

Other assignments of error relate solely to- the appellants other than Ford. There were a number of grounds urged by respondents on their motion for a new trial. It does not appear from the record upon what particular ground the motion was granted.

[6] It seems to be generally held that a promotor of a proposed Corporation who solicits and procures stock 'subscriptions, is the agent of the body of the subscribers to hold the subscriptions until the corporation is formed and 'then turn them- over to it without any further act of 'delivery on the part of the, ’subscribers; and hence a delivery of a subscription to such promoter is a complete delivery so that it becomes ea instcmti a ‘binding contract as between the subscribers. Minneapolis T. M. Co, v. Davis 40 Minn, 110, 41 N. W. 1026, 3 L. R. A. 796, 12 Am. St. Rep. 701. Carrying out the logical effect of this rule, it would seem that no: error was committed, or at least no abuse of discretion was committed, in granting a new trial to plaintiffs.

The judgment and orders appealed from are affirmed, and the cause remanded for new trial as to defendants other than Ford.

POLLEY, J., takes no part in the consideration of this case.